Chapter 8 - The Political Economy of Foreign Direct Investment

Political Ideology and FDI

- Radical View
- Pragmatic ationalism
- Free !ar"et
The Radical View
# !ar$ist view% !E&s e$ploit less-developed host co'ntries
- E$tract profits
- (ive nothing of val'e in e$change
- Instr'ment of domination) not development
- *eep less-developed co'ntries relatively +ac"ward and dependent on
capitalist nations for investment) ,o+s) and technology
# -y the end of the ./80s radical view was in retreat
- Collapse of comm'nism
- -ad economic performance of co'ntries that em+raced the radical view
- 1trong economic performance of co'ntries who em+raced capitalism
rather than the radical view
The Free Market View
# ations speciali2e in goods and services that they can prod'ce most efficiently
# Reso'rce transfers +enefit and strengthen the host co'ntry
# Positive changes in laws and growth of +ilateral agreements attest to strength
of free mar"et view
# 3ll co'ntries impose some restrictions on FDI
Pragmatic Nationalism
# FDI has +enefits and costs
# 3llow FDI if +enefits o'tweigh costs
- -loc" FDI that harms indigeno's ind'stry
- Co'rt FDI that is in national interest
# Ta$ +rea"s
# 1'+sidies
The Benefits of FDI to Host Contries
# Fo'r main +enefits of FDI for a host co'ntry
- Reso'rce-transfer effect
- Employment effect
- -alance-of-Payments effect
- Effect on competition and economic growth
# In a free mar"et view
- Economists arg'e that the +enefits of FDI so o'tweigh the costs
associated with pragmatic nationalism that it is misg'ided
- The +est policy wo'ld +e for co'ntries to forgo all intervention in an
!E&s investment decisions
Resorce!Transfer "ffects
# FDI can ma"e a positive contri+'tion to a host economy +y s'pplying
- Capital
- Technology
- !anagement
"m#loyment "ffects
# -rings ,o+s that otherwise wo'ld not +e created
- Direct% 4iring host-co'ntry citi2ens
- Indirect%
# 5o+s created +y local s'ppliers
# 5o+s created +y increased spending +y employees of the m'lti-
national enterprise
Balance!of!Payments "ffects
# -alance-of-Payments 3cco'nts are divided into two main sections
- The c'rrent acco'nt records transactions that pertain to three
categories% merchandise goods) services) and investment income
- The capital acco'nt records transactions that involve the p'rchase or
sale of assets
# C'rrent acco'nt deficits occ'r when a co'ntry imports more goods) services)
and income than it e$ports
# C'rrent acco'nt s'rpl'ses occ'r when a co'ntry e$ports more goods) services)
and income than it imports
# 4ost co'ntry +enefits from initial capital inflow when !C esta+lishes
+'siness
- 4ost co'ntry records c'rrent acco'nt de+it on repatriated earnings of
!C
# 4ost co'ntry +enefits if FDI s'+stit'tes for imports of goods and services
# 4ost co'ntry +enefits when !C 'ses its foreign s'+sidiary to e$port to other
co'ntries
"ffect on Com#etition and "conomic $rowth
# (reenfield investments increases the amo'nt of competition) which can%
- Drive down prices
- Increase the economic welfare of cons'mers
# Increased competition tends to stim'late capital investments
# 6ong-term res'lts may incl'de
- Increased prod'ctivity growth
- Prod'ct and process innovations
- (reater economic growth
Costs of FDI to Host Contries
# 3dverse effects on competition
# 3dverse effects on the +alance of payments
- 3fter the initial capital inflow there is normally a s'+se7'ent o'tflow
of earnings
- Foreign s'+sidiaries co'ld import a s'+stantial n'm+er of inp'ts
# ational sovereignty and a'tonomy
- 1ome host governments worry that FDI is accompanied +y some loss
of economic independence res'lting in the host co'ntry&s economy
+eing controlled +y a foreign corporation
Benefits of FDI to the Home Contry
# Improves +alance of payments for inward flow of foreign earnings
# Creates a demand for e$ports8
# E$port demand can create ,o+s
# Increased "nowledge from operating in a foreign environment
# -enefits the cons'mer thro'gh lower prices
# Frees 'p employees and reso'rces for higher val'e activities
Costs of FDI to the Home Contry
# Can drive o't local competitors or prevent their development
# Profits +ro'ght home 9h'rt& :de+it; a host&s capital acco'nt
# Parts imported for assem+ly h'rt trade +alance
# Can affect sovereignty and national defense
The Natre of Negotiation
# <+,ective% reach an agreement that +enefits +oth parties
# In the international conte$t) we m'st
- 'nderstand the infl'ence of norms and val'e systems
- +e sensitive to how these factors infl'ence a company&s approach to
negotiations
Negotiation and Bargaining Power
# The o'tcome of any negotiated agreement depends on the relative +argaining
power of +oth parties
# -argaining power depends on three factors
- The val'e each side places on what the other has to offer
- The n'm+er of compara+le alternatives availa+le to each side
- Each party&s time hori2on
-a+ 8 - The Political Economy Investasi 3sing 6angs'ng
Ideologi politi" dan FDI
- Radical View
- Pragmatis asionalisme
- Free !ar"et
Radi"al View
# pandangan !ar$is% !E=s menge"sploitasi "'rang +er"em+ang negara-negara t'an
r'mah
- 3m+il "e'nt'ngan
- -eri"an apa-apa tentang nilai dalam pert'"aran
- Instr'men dari dominasi) pem+ang'nan tida"
- 5a'h"an negara-negara +er"em+ang relatif ter+ela"ang dan tergant'ng pada negara-
negara "apitalis 'nt'" investasi) pe"er,aan) dan te"nologi
# Pada a"hir tah'n ./80-an pandangan radi"al di m'nd'r
- *er'nt'han "om'nisme
- -ad "iner,a e"onomi negara-negara yang mengan't pandangan radi"al
- 1trong "iner,a e"onomi negara-negara yang memel'" "apitalisme daripada
pandangan radi"al
The Free !ar"et View
# +arang meng"h's's"an -angsa dan ,asa yang mere"a dapat menghasil"an paling
efisien
# 1'm+er Daya transfer "e'nt'ngan dan memper"'at negara t'an r'mah
# per'+ahan dalam h'"'m positif dan pert'm+'han per,an,ian +ilateral menegas"an
"e"'atan pasar +e+as view
# 1em'a negara menerap"an +e+erapa pem+atasan FDI
Pragmatis asionalisme
# FDI memili"i manfaat dan +iaya
# Per+oleh"an FDI ,i"a manfaatnya le+ih +esar daripada +iaya
- -lo"ir FDI yang mer'gi"an ind'stri pri+'mi
- Pengadilan FDI yang ada di dalam "epentingan nasional
# Pa,a" istirahat
# 1'+sidi
!anfaat FDI to 4ost Co'ntries
# Empat "e'nt'ngan 'tama FDI 'nt'" negara t'an r'mah
- Reso'rce-efe" transfer
- Employment efe"
- 1aldo-of-efe" Pem+ayaran
- Efe" pada persaingan dan pert'm+'han e"onomi
# Dalam pasar +e+as melihat
- Para e"onom +erpendapat +ahwa manfaat dari FDI ,adi le+ih +esar daripada +iaya
yang +er"aitan dengan nasionalisme pragmatis +ahwa it' "elir'
- *e+i,a"an ter+ai" +agi negara-negara a"an mengor+an"an sem'a intervensi dalam
"ep't'san investasi !E
Reso'rce-Transfer Effects
# FDI +isa mem+'at "ontri+'si positif "epada e"onomi negara t'an r'mah dengan
menyedia"an
- !odal
- Te"nologi
- !ana,emen
Employment Effects
# !em+awa pe"er,aan yang lain tida" a"an dicipta"an
- Direct% 4iring host-warga negara
- Tida" 6angs'ng%
# 5o+s dicipta"an oleh pemaso" lo"al
# Pe"er,aan dicipta"an oleh pening"atan pengel'aran oleh "aryawan dari per'sahaan
m'lti-nasional
1aldo-of-Pem+ayaran Effects
# -alance-of-Pem+ayaran 3cco'nt di+agi men,adi d'a +agian 'tama
- 3cco'nt saat ini mencatat transa"si yang +er"aitan dengan tiga "ategori% +arang
+arang) ,asa) dan pendapatan investasi
- Para neraca modal mencatat transa"si yang meli+at"an pem+elian ata' pen,'alan
aset
# C'rrent acco'nt defisit ter,adi "eti"a se+'ah negara mengimpor le+ih +anya"
+arang) ,asa) dan pendapatan daripada e"spor
# C'rrent acco'nt s'rpl's ter,adi "eti"a se+'ah negara e"spor le+ih +anya" +arang)
,asa) dan pendapatan daripada impor
# negara 4ost manfaat dari ar's mas'" modal awal "eti"a !C mendiri"an +isnis
- egara 4ost catatan re"ening de+et pada pendapatan dip'lang"an !C
# negara 4ost manfaat ,i"a FDI s'+stit'si 'nt'" impor +arang-+arang dan ,asa
# negara 4ost manfaat "eti"a !C mengg'na"an ana" per'sahaan l'ar negeri 'nt'"
e"spor "e negara-negara lain
Efe" Persaingan dan Pert'm+'han E"onomi
# investasi (reenfield mening"at"an ,'mlah "ompetisi) yang dapat%
- Drive men'r'n"an harga
- !ening"at"an "ese,ahteraan e"onomi "ons'men
# !ening"atnya persaingan cender'ng 'nt'" merangsang investasi modal
# hasil ,ang"a pan,ang dapat melip'ti
- Pening"atan pert'm+'han prod'"tivitas
- Prod'" dan proses inovasi
- (reater pert'm+'han e"onomi
-iaya FDI to 4ost Co'ntries
# efe" yang mer'gi"an pada persaingan
# efe" yang mer'gi"an pada neraca pem+ayaran
- 1etelah ar's mas'" modal awal +iasanya ada aliran +eri"'tnya pendapatan
- Foreign ana" per'sahaan dapat mengimpor se,'mlah +esar mas'"an
# asional "eda'latan dan otonomi
- -e+erapa pemerintah host "hawatir +ahwa FDI disertai oleh +e+erapa "ehilangan
"emerde"aan e"onomi yang menga"i+at"an pere"onomian negara t'an r'mah
di"endali"an oleh per'sahaan asing
!anfaat FDI "e 4ome Co'ntry
# !ening"at"an neraca pem+ayaran aliran +atin pendapatan asing
# !em+'at permintaan 'nt'" e"spor8
# Permintaan e"spor dapat mencipta"an lapangan "er,a
# !ening"at"an pengetah'an dari asing yang +eroperasi di ling"'ngan
# *e'nt'ngan "ons'men melal'i harga yang le+ih rendah
# !em+e+as"an atas "aryawan dan s'm+er daya 'nt'" a"tivitas nilai yang le+ih
tinggi
-iaya FDI "e 4ome Co'ntry
# Dapat meng'sir pesaing lo"al ata' mencegah per"em+angan mere"a
# *e'nt'ngan mem+awa p'lang =mel'"ai= :de+et; s'at' neraca modal t'an
# Parts diimpor 'nt'" pera"itan neraca perdagangan terl'"a
# Dapat mempengar'hi "eda'latan dan pertahanan nasional
The at're of egotiation
# 1asaran% mencapai "esepa"atan yang meng'nt'ng"an "ed'a +elah piha"
# Dalam "onte"s internasional) "ita har's
- !emahami pengar'h norma-norma dan sistem nilai
- Pe"a terhadap +agaimana fa"tor-fa"tor terse+'t mempengar'hi pende"atan
per'sahaan 'nt'" negosiasi
egosiasi dan -argaining Power
# 4asil dari setiap perset','an dinegosiasi"an +ergant'ng pada daya tawar relatif dari
"ed'a +elah piha"
# daya Tawar tergant'ng pada tiga fa"tor
- ilai masing-masing sisi tempat pada apa yang ditawar"an lain
- 5'mlah se+anding alternatif yang tersedia 'nt'" masing-masing sisi
- 1etiap partai hori2on wa"t'